Indonesia Green Power Steams Ahead As Economy Booms

Indonesia can’t get enough power to feed its booming economy and fortunately for Mochamad Sofyan, investors are lining up to invest billions of dollars in the country’s growing green power sector. Sofyan, head of the new and renewable energy division at state utility PLN, is busier than ever as an increasing number of
foreign and local firms file into his office looking to invest in geothermal, hydro and biomass power projects.

Solar is also gaining interest.

Government programs to speed investment in power projects, easier regulations and rapid economic growth are lures. Around a third of Indonesia’s 240 million people are without power supply, and projections are for generation capacity to nearly triple by 2020 to meet a severe power shortage. Rising investment in green
power as well as coal and gas is part of a surge in foreign direct investment, up 21 percent on the year in the second quarter of 2011. “If I had enough time, I would be meeting investors every day,” Sofyan said in an interview at his office in south Jakarta, where a white board listed his many appointments.

Two years ago, he received just two visits a month. Now, investors from the United States, Japan, Europe, South Korea and China line up for an appointment, he said. Investors in green power include Itochu, Sumitomo and Marubeni of Japan, and Britain’s International Power. Earlier this month, the Indonesian government said French firms would invest about $2 billion in geothermal projects.

Indonesia has pledged to cut the growth of greenhouse gas emissions, in part through boosting green power. It has plenty of clean energy bubbling away under the surface. The archipelago, along the Pacific Ring of Fire, is brimming with volcanoes and super-heated water that can be pumped from deep wells to drive steam
turbines.

Coal Still King

At present, about 12 percent of Indonesia’s total energy mix comes from geothermal and hydro. By 2019, that is projected to grow to 18 percent, PLN says. Coal will remain as the top energy source, rising to about 60 percent of the energy mix by 2019 from less than 50 percent now. The challenge is vast. As of 2010, Indonesia’s generation capacity was 30,000 megawatts. For neighboring Australia, with a tenth of the population, it is 51,000 MW.

Two fast-track power programs, each totaling 10,000 MW, have helped propel investment because of a government guarantee that PLN, the top power producer and sole distributor, will buy the electricity. The second and latest program focuses on green power, with about half of the capacity set to come from renewables. Other investments are going ahead outside the program as well.

All told, Sofyan said he expected an additional 6,000 MW from new geothermal projects by 2019 and another 6,100 MW from large and small hydro plants. Currently, about 1,200 MW comes from geothermal plants and 4,000 MW from large hydro. Despite the rush for green power in Southeast Asia’s largest economy, bureaucratic delays were hampering completion of power purchase agreements and other steps, such as permits to clear forested land, Sofyan said. “Some of the
projects will be delayed two or three years. For geothermal projects we still have some problems,” he said, adding this meant the original 2014 completion date under the program could now be stretched to 2017 for some projects.

Investors have shown willingness to deal with delays and red tape.

Swiss firm South Pole Carbon Asset Management has stepped up its interest in geothermal and hydro projects in Indonesia. Smaller projects, those less than 10 MW, were particularly attractive because a change of rules in late 2009 streamlined the approval process and sets a standard power payment, or feed-in tariff. “We have a deal with one project developer who wants to build more than 10 mini-hydro projects, each less than 10 megawatts,” Paul Butarbutar, South Pole’s country director for Indonesia, told Reuters in Jakarta.

But larger power plants faced a much longer approval process, he said, adding his firm has won approval for 3 geothermal projects totaling 330 MW. Coal and gas are attracting much greater investment. PLN estimates it will add an additional 26,700 MW of new coal and gas-fired power by 2019. Independent power producers will add at least another 19,000 MW. Last month, PLN said Indonesian coal miner Adaro, Itochu and Japan’s Electric Power Development Co (J-Power) won a tender to develop a $3.2 billion high-efficiency coal-fired power plant in Java with a capacity of 2,000 MW. (Editing by Simon Webb)